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UncategorizedFebruary 15, 20160 comments

Munger, Chadwick & Denker Prevails in Non-Dischargeability Complaint

Attorney Mark Chadwick recently prevailed at trial in an adversary proceeding in the Bankruptcy Court for the Eastern District of Virginia.  On behalf of his client, Mr. Chadwick obtained a judgment against the debtor for over $192,000, establishing that the debt was non-dischargeable pursuant to the “false pretenses” and “actual fraud” prongs of 11 USC section 523(a)(2)(A).  In addition, Mr. Chadwick persuaded the court that a chief executive officer of a corporation acts as a “fiduciary” under 11 U.S.C. section 523(a)(4).  There is a split of authority on whether a corporate officer is a fiduciary under an “express” or “technical” trust under section 523(a)(4).

In a result with interesting implications for future litigation, the Bankruptcy Court held that the debtor was a fiduciary under section 523(a)(4).  In so holding, the court noted that the question depends on federal common law, but that state law is relevant to the inquiry.  Pointing to relevant Indiana law, which does impose a fiduciary duty upon corporate officers, the court held that a CEO qualifies as a fiduciary under Section 523(a)(4).  As a result, and depending on the circumstances, proving a defalcation while acting as a fiduciary might present fewer evidentiary obstacles than proving “actual fraud” under section 523(a)(2)(A).